Why The Auto Industry Is Paying Special Attention To NAFTA Negotiations

U.S. and Canadian trade negotiators are scrambling today to come to a compromise on a new NAFTA deal. If they don't reach an agreement by the end of the week, President Trump has threatened to cut Canada out of the deal and forge ahead with a new pact with Mexico alone. Analysts say that could be very bad for the U.S. auto industry, which makes cars and sources parts across all three countries. Here's NPR's Chris Arnold.

CHRIS ARNOLD, BYLINE: Canada is our biggest trading partner for exports - bigger than China, bigger than Mexico, bigger than anybody - so the idea of cutting it out of NAFTA has all kinds of businesses nervous, especially those in the auto industry.

CHRISTOPHER WILSON: Right now, you can't really talk about a car that's made in America, that's made in Canada or a car that's made in Mexico because they all use parts and materials from the other two countries.

ARNOLD: Christopher Wilson is a NAFTA expert at the Wilson Center. He says it's taken decades and many billions of dollars to build the complex supply chains that are involved. Car parts move across borders, a screw made in Mexico ends up in a motor in the U.S., and so on.

WILSON: At this point, the auto industry is so integrated across North America that it would be incredibly hard and costly to take it apart.

ARNOLD: So he says blowing up NAFTA without replacing it with a deal including Canada could be very damaging to companies in all three countries, which is why the Trump administration's latest move here is so startling.

WILSON: Basically, the United States just upped the pressure enormously on Canada. I mean, they're almost holding a gun to the head of Canada and saying, strike a deal this week or we're going to do this bilaterally with Mexico.

ARNOLD: Wilson says it could be a tough negotiating tactic or a bluff.

WILSON: Yeah. Is it a real gun or a water gun? I don't know.

ARNOLD: Wilson thinks that with so much at stake, that the U.S. and Canada will work out a deal. And a top Canadian negotiator said just yesterday that the two sides have made a lot of progress, including a basic agreement on cars. Most analysts hadn't realized that. President Trump said this week that the U.S. deal with Mexico would be good for American workers.

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PRESIDENT DONALD TRUMP: This is something that's very special for our manufacturers and for our farmers from both countries - for all of the people that work for jobs.

ARNOLD: Christopher Wilson is less enthusiastic. He says even if Canada is part of the deal, it might be a slight plus for auto companies and workers in the U.S., and it might mean slightly more expensive cars for U.S. car buyers, but...

WILSON: Comparing the old NAFTA to the new NAFTA - sort of the outlines that we've seen so far, at least - there's not that big of a difference.

ARNOLD: Kristin Dziczek agrees. She's with the Center for Automotive Research in Michigan.

KRISTIN DZICZEK: On the margins, it could help a little.

ARNOLD: Dziczek says the deal with Mexico boosts the portion of a car that has to be built in North America up from 62 percent to 75 percent. But many cars, she says, already comply with that, and for those that don't, automakers could use more North American parts or just pay a relatively small penalty. But Dziczek says a much bigger factor looming out there is that the U.S. still could impose steep tariffs that it's been considering for cars and auto parts from the rest of the world, outside of NAFTA.

DZICZEK: So that's a huge deal. We would see some big negatives for the U.S. economy.

ARNOLD: Dziczek says other countries would retaliate, cars would be more expensive, sales would slump. And she estimates it would probably mean a loss of more than 300,000 U.S. jobs.